China Has 3 Financial Weapons It Could Use to Damage the U.S.

The ongoing trade war between the U.S. and China has been intense. Even disputes with other countries have often been used as ways to indirectly attack China.

Overall, China has found subtle ways to beat Donald Trump at his own trade war, even as it has suffered economic damage in turn. But China has yet to fully deploy their fiscal sledgehammers. Here are three things the country could do—and in some cases has already begun to do—if it chooses to inflict maximum pain on the United States.

Permit Hell

The most likely step would be an aggressive extension of current bureaucracies. China has frequently turned to permitting, special laws, and other official requirements to slow foreign-owned firms while given freer room to domestic competitors.

There is evidence that China has already begun to increase measures to hinder U.S. companies to create corporate pressure on the Trump administration. Just over 52% of firms reported the increase of such “qualitative measures,” according to a joint survey by the American Chamber of Commerce in China and the American Chamber of Commerce in Shanghai between Aug. 29 and Sept. 5, 2018. The perception was that the activities were a form of pressure from China over the ongoing trade dispute. About 27.1% had seen increased inspections, 23.1% experienced slower customs clearance, and 19.2% reporting other complications from increased official scrutiny.

“They can delay those things to the point that it can cost you serious money,” said John Scannapieco, chair of the global business team at law firm Baker Donelson. Customs shipments can be held until they lose value, like perishable goods, or are turned away entirely. A company can be forced to cease operations until some regulatory hurdle is cleared, costing money.

“A lot of this is not coming necessarily from a national level because business is done at a district level,” Scannapieco said. “It’s like the county government doing this.” But local officials are following a generation of nationalistic fervor.

Sell U.S. debt

China is one of the largest holders of U.S. debt, according to Treasury Department figures. The amount it holds is $1120.5 trillion, which represents 27.5% of all held by foreign countries or 5.1% of the total $22 trillion U.S. debt. And selling some of that could have bad effects for the U.S. economy, says Amit Batabyal, a professor of economics at Rochester Institute of Technology. The action could affect the value of U.S. bonds and the dollar, possibly increasing the difficulty of the U.S. to raise money as easily as it now does.

“I don’t think that they’re going to be doing that en masse,” Batabyal said. “If they do sell off very, very large quantities of U.S. debt, given how interconnected the global economy is, no one knows what will happen and it could hurt them.” (That is, the value of their remaining holdings could also drop.)

However, in mid-May came news that China sold off a net $20.5 billion of its U.S. Treasury bonds, according to data from the Treasury Department. That is the most since late 2016, the year the trade war started. Although experts generally agree that China is not likely to turn its holdings into a weapon, it is a worrying development.

The Rare Earth Threat

The third tool is exports of certain goods that are critical to some important U.S. industries.

One is rare earth metals, a group of minerals that are vital to advanced electronics and power systems, including smartphones, batteries for many applications including electric vehicles, and high-tech military weapons. China is the source of 80% of the world’s supply and there are signs the country has threatened a potential restriction of rare earth exports to U.S. firms, according to CNBC.

Rare earths are a group of 17 minerals that have a wide variety of uses, including electronics, magnets, lasers, ceramics, batteries, medical equipment, and optics. The name can be misleading, as, in theory, the materials are plentiful. But they are thinly distributed. The rare part is having heavy enough concentrations to make mining economically possible. A complication is environmental impact because processing uses dangerous chemicals and high heat that can release pollutants.

China is by far the largest producer and also has the largest deposits, according to data from the U.S. Geological Survey. Australia and the U.S. are the second and third largest producers, but together they provide 29% of China’s capacity. According to various marketplace reports, prices on some of the materials have jumped by 50% to 70% this year.

China would have difficulty simply cutting off exports, given a previous attempt to do so that resulted in a World Trade Organization ruling against the company. But it could reduce its second half-year mining quota in June and, although the U.S. is a small customer of China’s rare earths trade—accounting for 4%—American companies like Apple manufacturing goods in China might find official processes for getting what they need much slower than usual.

And then there are basic materials used in pharmaceutical production. “China makes around 40% of the basic chemicals (API’s [or] active pharmaceutical ingredients) needed in pharma,” wrote Michael Gravier, an associate professor of marketing at Bryant University, in an email to Fortune. That isn’t the same level of supply domination, but it could disrupt things.

Any of these measures could prove painful to China, either through the loss of U.S.-backed industry, investment value, or important export markets. However, what might have been considered unthinkable becomes all the more plausible as the trade war drags on.